Biggart Baillie Solicitors

Affordable Housing and Housing Land audits: Up to date Scottish Government Guidance

Friday, September 24, 2010

by Murray Shaw

Introduction

The Scottish Government has produced an up-to-date Planning Advice Note (2/2010) (“the PAN”) dealing with these two important topics.  While related, they are not the same and it is not immediately obvious why the guidance has been conjoined in this way. 

Be that as it may, the PAN replaces two well-known and often referred to pieces of guidance, namely PAN 74 and Annex A to SPP3.  The guidance in the PAN is a consolidation of the position of the Scottish Government on these two topics, rather than introducing significant new guidance. 

The housing industry has been very severely affected by the current economic downturn.  Recent statistics confirmed that 17,474 houses were completed in 2009-2010, a drop of 17% on the past year.  Completions are at a level comparable to the early ‘80s, well short of ambitious targets of just 3 years ago.  While the Government has sought to make funds available to build additional affordable homes, it is not uncommon for the trigger for land to be made available for affordable housing to be the commencement of the mainstream housing.  If mainstream housing does not commence, then the affordable housing land may not need to be made available. 

Many builders have looked to build affordable housing as a way of keeping businesses ticking over and cashflow positive.  Of course not all are suited to provide affordable housing or have a suitable product that can be used for this purpose.  In addition, procurement rules and requirements for best value may mean that it may not be possible for the developer to undertake the construction of the affordable housing on sites thereby denying them the opportunity to achieve that throughput and cashflow. 

While the Scottish Government has sought to make funding available for the building of affordable (or social) housing, the likely cuts in public expenditure seem to make it inevitable that more imaginative solutions are going to have to be found, and certainly the PAN goes some way to recognise the need for flexibility. 

Affordable housing

Affordable housing policies have been part of the planning system for a significant length of time, despite continued reservations by the development industry about whether affordable housing policies are or are not legitimate.  However, there has been no significant legal challenge in Scotland about that legality, and as a consequence they have become an established part of the contributions that developers are often expected to make.  Having said that,  the up-to-date guidance does recognise the current financial situation.  Paragraph 2 simply states “the advice in this PAN has to be applied constructively and with flexibility in response to financial and market conditions”.  It goes on to identify areas where flexibility may be appropriate, including tenure type, the percentage of affordable housing units required, identifying development plan policies for specific sites for the provision of affordable housing, the possibility of provision on an alternative site and the use of commuted sums. 

The new guidance does stress rather more than the old the fact that affordable housing can be provided through a range of housing types and tenures.  All too often, local authorities see the provision of housing by residential social landlords (“RSLs”) as the only means of provision. 

Paragraph 3 of the PAN sets out the Government’s ambitions, which are:

• to increase the housing supply across all tenures over the longer term;
  
• to increase the choice of housing available to those with low incomes;
  
• to create housing developments with high environmental and design standards; and
  
• to ensure that social housing provides better value for public expenditure.

Though not expressly stated, this guidance does appear to acknowledge that those who live in social or affordable housing will want a choice of options as to how and to what extent they participate in ownership. 

While the PAN sets out the ways in which affordable housing might be provided, it makes clear that social rented housing is only one means of provision.  Specifically, reference in some detail is made to “subsidised low cost housing for sale” and “unsubsidised low cost housing for sale”.  Going forward, it seems there will be significant scope for developers to operate within these two market sectors.  Interestingly, reference is also made to private rented accommodation as a category of affordable housing.  The guidance does make clear, however, that for housing in these three categories to count as affordable, the price or rent must be informed by the Housing Need and Demand Assessment and agreed with the local authority – which may itself be an issue. 

The PAN sets out the role that the Government expects all parties involved in the development industry to play in the provision of social housing.  It stresses the need for certainty and the provision of early information as to what is to be required from developers.  The PAN records again that the Housing Need and Demand Assessment and the Local Housing Strategy are key documents in identifying when affordable housing is necessary, and therefore justifying policies in the development plan. 

So far as development plans are concerned, it is again recorded that “a generous supply of land should be allocated in the development plan to meet housing requirements”.  The guidance records that it may be appropriate to allocate sites purely for affordable housing purposes.  As in past guidance, no specific target is set but the benchmark figure of 25% which was referred to in previous guidance again appears. 

So far as implementation is concerned, the expectation is that affordable housing should be provided on-site in developments of 20 or more units (this figure is reduced in rural areas).  For smaller sites, it is acknowledged that while on-site provision may be possible, off-site provision or indeed a commuted sum may be more appropriate.  The guidance does acknowledge the possibility of providing affordable housing on an alternative site – an option that many councils are reluctant to accept.  It is fair to point out that the guidance (see Paragraph 21) does see this as an exceptional step.  Equally, the same paragraph states “commuted sums should only be used sparingly”.  In fact, commuted sums are commonly adopted as a way of satisfying an affordable housing provision, though the real value of commuted sums may be limited if the local authority (or other provider) cannot afford to buy land upon which affordable housing can then be developed. 

There is no detailed guidance upon how commuted sums should be calculated – Paragraph 22 simply records the matter for negotiation having regard to development costs and other contributions and other relevant factors, including layout and design.  This language is probably slightly more relaxed than the language in the previous guidance.  It is certainly suggested that valuation should be carried out on an independent basis.  Helpfully, the guidance specifically records that planning authorities should take account of other issues which may affect the viability of the site, including other developer contributions, contamination and specific site construction issues.  In that context and against that background, the guidance acknowledges that there may be exceptional cases which justify no affordable housing contribution. 

Paragraph 29 deals with the retention of houses as affordable housing and the best way to achieve this.  It suggests that planning agreements may be a tool for this purpose.  This is an issue where standardised wording would, in particular, be helpful. 

As in past guidance, the Government makes clear that it expects affordable housing to be integrated with the development as a whole.  The guidance does, however, deal with the issue of cashflow, noting that on large sites it may be appropriate not to include affordable housing in the first phase in order to generate a positive cashflow.  It is expected that the design of affordable housing should be high-quality, and the housing should be indistinguishable from other mainstream housing. 

Interestingly, Paragraph 30 specifically deals with additional means of delivering affordable housing, possibly as a consequence of the current financial situation.  The guidance suggests that amongst the tools available to local authorities are allocations of specific sites for affordable housing, identifying plots for self-build, using compulsory purchase powers and making surplus local authority land available for affordable housing – though this of course may reduce the capital receipt for local authorities (potentially a difficult pill to swallow in the current financial climate).  The guidance also suggests that local authorities might work with other third parties to assemble sites, particularly public agencies, to identify land for affordable housing – though the same issues may arise.  More directly, it is suggested that local authorities could consider increasing the rate of council tax for second homes and long-term empty properties with a view to using the funds thereby realised to provide affordable housing. 

Housing land audits 

The second topic tackled in the PAN relates to housing land audits, an important part of the residential housing land supply debate.  Audits are often controversial and have been the subject of much debate at local plan inquiries in the past.  Going forward, it is unlikely that local plan inquiries will form quite as significant a part of the planning process as they have in the past. 

Again, the guidance tends to consolidate previous guidance rather than introduce much that is very new.  The importance of the audit process is underlined, and guidance is given as to how audits might be carried out. 

Probably the key role of the housing land audit is to identify the effective housing land supply and Paragraph 55 sets out the test to decide whether or not a site is effective, looking at ownership, physical aspects, the extent to which the site has been contaminated, deficit funding (i.e. the extent to which funding is required to make the site effective), marketability, any infrastructure constraints and the preferred use for the land.  Again, these are all tests which have appeared in the past. 

The guidance specifically deals with programming, non-effective or constrained sites and land with agreed potential. 

Controversial aspects in the past have included allocations for small sites and how windfall sites fall to be recognised.  Again, the Government has repeated past guidance, indicating that it may be appropriate for small sites to be included as part of the audit process.  Past guidance to the effect that sites might be included on an aggregated basis has also been repeated. 

Summary

While the PAN has really only consolidated past guidance, it deals with two areas which are of critical importance to the housing industry, and is therefore likely to be frequently consulted and referred to.